In the possible event of a rise in the pricing of a Le Pen 'win', as well as possibility of broader peripheral European risks materializing, it could be worth looking at the potential for safe-haven demand in Scandie bonds -specifically, looking at Norway. Norway's firm public debt position at historical lows of 31% of GDP, (better than Sweden's 43.4%) and budget deficit of 6.4% of GDP, and its partially uncoordinated business cycle to the EU, could be reason as to why there should be some natural allocation of a European FI portfolio to Scandies in general.

A stylized look at foreign holdings of SGB's vs peripheral-core spread (BTP-bund below) in 2011, there was a sustained surge higher in demand - which could suggest a safe haven bid characteristic.

Courtesy Danskebank

One could expect Norway to have less liquid money markets than Sweden and Germany, and in potential scenarios of broader European peripheral risk-off, we could see higher short-end rates, passing through to the swap rates. Ideally, would be to target something like the 5y segment to have exposure to this, but using 2011 crisis as a guide, we can see that widening Norway ASW still occured in longer-end maturities such as the 10y.

NOK 10y ASW vs SEK 10y ASW

We can see that current tights of 28 bps in the Norway 10y ASW has attractive potential to widen. Although Riksbank QE can be assumed to be the main driver of a 24 bps wider equivalent 10y ASW in Sweden, it is worth noting perhaps from an RV perspective that historically, Norway 10y ASW has almost always traded wider than the Sweden 10y ASW - this perhaps can be understood from the fact that Swedish money markets are more liquid than Norway. Aside from the RV proposition, the (obviously) superior yield premium of 10y NGB over 10y SGB of over 100 bps could prove Norwegian bonds more attractive than Swedish bonds in the event of a potential safe-haven bid.

The trade of course is dependent on repo-rates data which I have no access to. With 6m OIBOR currently at 121 bps and the swap spread at 28 bps, as long as repo is < 93 bps, trade should carry +ve.

Rates RV players I speak with have been looking at ways to play a steepening of the NOK curve, particularly for long end to sell off vs belly. A curious peek as to see if you can have the curve steepening bias whilst having the 'ASW' component, we look at the NOK 7y vs NGB 5y. Directional dislocation is not present, with the only recent one in memory being in Q3 '15.

NOK 7y vs NGB 5y

as a curve it does still look attractive to 'steepen' further, just whether its late to enter after its 50 bps tights is the question.. In addition belly in NGBs have been relatively more bid than 10y (lagging) which was the reason why I suggested the 10y ASW purely on better 'value' - and not to mention more carry buffer for repo etc.